Profits Up 32% In First Quarter For U.s. Insurers

Profits Up 32% For Insurers In First Quarter

Property-casualty insurers' profits jumped 32 percent in the first quarter, but industry spokesmen are warning that financial results could take a plunge.

U.S. insurers' net income for the first three months of 1992 was $4.9 billion, an increase of 32 percent from the $3.7 billion a year ago, industry organizations reported Thursday.

The figures were released by the Insurance Services Office Inc. and the National Association of Independent Insurers. The numbers are estimates for the industry, based on reports of insurers representing 96 percent of the nation's property-casualty business.

The 32 percent first-quarter increase in profits comes on the heels of a 29.7 percent increase in 1991 full-year profits from 1990.

However, the increase in first-quarter profits is attributable to temporary factors, said Sean Mooney, senior vice president and economist for the Insurance Information Institute, an industry organization in New York City. Those factors are much higher capital gains from selling investments, and insurers' reducing reserves, Mooney said.

It appears that insurers are revising their views on how much money they'll need to pay claims in the future, and are reducing reserves accordingly, Mooney said.

But over time, claim costs in most lines of insurance rise more sharply than overall inflation does, he noted.

"With claim costs likely to reverse from decreases to increases in the near future, and realized capital gains to evaporate, the stage is set for a severe downturn in the financial results of the property-casualty industry," Mooney said.

In addition to the capital gains, first-quarter profits were helped by unusually light losses from natural catastrophes, said James Ramenda, managing director at Northington Partners in Avon.

"They're probably doing, on an industrywide average, quite a bit worse than these results suggest, and clearly managements are not happy with the level of [commercial insurance] prices," Ramenda said.

The cyclical industry, locked in price competition for the past

five years, has long been hoping for market conditions to turn so companies can boost prices on business insurance.

Some companies that sell personal insurance -- auto and homeowners' policies -- are reporting very good earnings, Ramenda noted. But some of the companies are picking up customers dropped by other insurers, and time will tell whether those customers represent profitable business, he said.

Hartford-based insurers are among those that have shrunk their personal lines because of inadequate profits.

The industry's $4.9 billion of first-quarter net profits included $4.5 billion of operating income before taxes and $2 billion of realized capital gains. The capital gains were double the $1 billion of a year ago.

The industry paid $1.6 billion of income taxes in this year's quarter, compared with $1.3 billion a year ago when operating income before taxes was $4 billion.

The underwriting loss -- which shows how much of claims and other business expenses are not covered by premiums -- shrunk to $4.1 billion in the first quarter from $4.6 billion a year ago.

Written premiums grew to $57.7 billion, from $56.9 billion a year ago. Investment income, which includes interest on bonds and dividends on stocks, was $8.57 billion, compared with $8.54 billion a year ago.

Insurers' financial results showed a rate of return of 12.1 percent, which puts them in the same league as other industries.

The property-casualty industry's surplus -- the financial cushion that is assets minus liabilities -- rose to $160.3 billion at March 31. Surplus was $151.4 billion a year ago and $158.2 billion at the end of 1991